Far less Canadian oil sands crude reached the Gulf Coast by rail last year than the U.S. State Department had been expecting, according to data that could flavor the final stages of the Keystone XL pipeline debate.

In January, the State Department concluded that practically nothing would hamper development of the Canadian oil sands since energy companies could easily move the fuel by rail if TransCanada Corp's pipeline was rejected.

Transportation concerns loom large for Western Canada's oil sands sector since the energy patch is vast and productive, but roughly 2,000 miles (3,220 kms) away from the Texas refineries that can turn the commodity into usable fuel.

In March 2013, a U.S. State Department report cited industry projections that about 200,000 barrels per day (bpd) of oil from the Western Canadian Sedimentary Basis (WCSB) would be arriving at the Gulf Coast by rail before the end of 2013.

But even in December, when deliveries were near their highest for the year, that tally did not top 40,000 bpd, according to a Reuters analysis of data released by the Energy Information Administration last week.

The data, which details individual deliveries, indicates that monthly oil arrivals by rail were often below 30,000 bpd early last year and then rose unevenly.

The State Department dropped specific projections for oil-by-rail shipments to the Gulf Coast in its final Keystone XL environmental impact study, released on Jan. 31.

Data from Canada's National Energy Board released this week point to slightly higher deliveries to the Gulf Coast but at levels still below official forecasts.

Roughly 57,000 barrels per day of Canadian crude reached the Gulf Coast by rail, the statistics agency said.

Market analysts say they are not surprised that the oil sands sector has been slow to ramp up rail shipments, given its greater cost and complexity compared to pipelines.

"It is hard to venture into the oil-by-rail space in Western Canada and quickly execute," said Michael Wojciechowski, an energy analyst with Wood Mackenzie in Houston, citing severe winter weather and engineering hurdles that operators face in Alberta.

CANADIAN IMPORTS

Canada provides more oil to the United States than any other country and those volumes have been growing.

But while the roughly 2.57 million bpd of Canadian crude that crossed the border in 2013 has risen by 30 percent since 2010, the share reaching the Gulf Coast fell by about 18 percent to about 118,000 bpd in that time, EIA data shows.

Midwest refineries have absorbed most of the higher supply, but existing refineries there are being pushed to capacity, which is partly driving interest in the Gulf Coast refiners, said Wojciechowski.

Official data suggests only between a quarter and a half of Canadian crude reaching the Gulf Coast is arriving by train. Most of the rest is arriving by pipeline.

In order to match the more than 800,000 bpd capacity of the proposed Keystone pipeline, oil sands operators would need to put more than 13 mile-long trains laden with oil onto the tracks towards the Gulf Coast, every day.

The feasibility of such a plan weighs on the pipeline debate, which is now well into its sixth year.

Keystone foes insist that blocking the pipeline will curtail development of an energy source that is abundant but can only be reached by burning large amounts of fossil fuels blamed for worsening climate change.

Supporters of the project argue that although oil sands crude will be developed with or without Keystone, moving the product by pipeline is a safer, cheaper option to a massive increase in oil transported by rail.

While the State Department has concluded that higher costs are not likely to dent oil sands production, other agencies including the U.S. Environmental Protection Agency, are more skeptical.

In April, the EPA asked the State Department to recognize "the potential for much higher per barrel rail shipment costs".

The EPA, State Department and several other agencies have about two more months to mull the pipeline plan and weigh in with the White House.

President Barack Obama has said he will have the last word on the pipeline but a decision is not expected before May at the earliest. The deadline for public comment on the State Department's Keystone environmental impact statement is Friday.Source: Reuters

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